International News & Opinions

Trump is losing the trade war and blaming China

US President Donald Trump boasted that he is winning the trade war, telling delegates at the recent United Nations General Assembly (UNGA) in New York that the US economy is booming whereas China’s is faltering. In light of the delegates’ snickering and laughing, however, few if any attendees took him seriously, perhaps for good reason.

Official economic data and reality suggest the US economy may not be doing as well as Trump claimed. The number of homeless people rose in 2017. Soybean and other farmers are concerned about losing the lucrative Chinese market for good, while US businesses are worrying that they may be in the crossfire of the trade war. Consumers, who are already struggling to stay above water, worry that the tariffs imposed by the Trump administration might pull them under. These are just a few examples of the latest concerns.

US business concerns

A September survey by the American Chamber of Commerce in China found that more than 60% of US businesses in China will be hurt by Trump’s tariffs and only 6% will be returning home because of them. The last figure is interesting, and telling.

First, the main reason for US firms not returning to the US might be for business interests. The Chinese market of 1.4 billion people, most of whom have sufficient savings and low debts, is too lucrative to give up. Besides, US manufacturing is far less productive than China’s because the latter has built a very comprehensive and efficient infrastructure system, from transportation to supply chains. Thus returning to US soil would make US businesses less competitive.

Second, people have the right to choose and maximize their own self-interest. In a market economy like the US, profit expectation is a key determinant of investment decisions, going where the money is. Trump might in fact be the reason most would not return to the US, because his trade policies increase production costs, such as his steel and aluminum tariffs and the recent United States-Mexico-Canada Agreement (USMCA).

Ford Motor Company has already complained that the steel and aluminum tariffs could reduce its profits by US$1 billion. The automobile-manufacturing provisions in the USMCA requiring 75% local content and increasing Mexican wages to $16 per hour will increase production costs further.

Consumers also want the biggest bang for their buck, suggesting they will buy from whoever gives them the lowest price. Indeed, most US consumers have become addicted to lower-price Chinese goods. Given their increasingly indebtedness, that addiction would rise.

Therefore, it should not be a surprise that domestic and foreign investment in the US is falling and will likely continue to decrease in the coming years if the trade war drags on. According to official government statistics, US inbound investment went into negative territory of -$8.2 billion in the first quarter. Chinese investment in America plunged by 92% because of “national security” concerns.

Farmers’ concerns

Most US food producers – from lobster fishermen to soybean growers and others in between – will tell us that they have worked for years to develop the China market. For example, it took many years to wrestle back Chinese soybean buyers from Brazil. Trump’s tariffs undid those efforts in just a few days because China is turning to Brazil and other soybean-growing countries. Once a business relationship is established with non-US farmers, America could lose the lucrative and huge Chinese market forever.

On other food products, Trump’s tariffs are said to be responsible for billions of kilograms of beef in cold storage looking for buyers. The poultry and pork industries are also concerned with Trump’s “winner-take-all” trade stance because China is by far the biggest market for those two products. Pork and chicken in fact are China’s “national meats” – people there eat every part, from feet to intestines to meat, of the animals. Thanks to Trump, US hog and chicken farmers may kiss 1.4 billion consumers goodbye.

Poverty and homelessness on the rise

According to the US Tax Policy Center and others including the United Nations, the US Federal Reserve, and the US Department of Housing and Social Development, the numbers of poor and homeless people are on the rise or becoming more destitute under Trump.

The Housing Department estimated that nearly 540,000 people slept on the streets in 2017, a year-on-year rise of almost 1%. A recent UN report found that the poor had become more destitute since Trump had been in charge, an assessment concurred by some US politicians such as Senator Bernie Sanders because of increasing wealth inequality. The Fed revealed that more than 40% of American workers are still struggling, living from paycheck to paycheck.

Comparing US and Chinese economic growth

Most reputable economic forecasting organizations – the Organization for Economic Cooperation and Development, the International Monetary Fund, the World Bank and others – expect the second-quarter growth of 4.2% in US gross domestic product will not be repeated in the third and subsequent quarters.

According to the Tax Policy Center, the $1.5 trillion worth of tax cuts pushed through by the Trump administration and Republican-controlled Congress primarily benefited the top 1%. Those findings would suggest future consumption will be low or flat. Besides, the government spending that helped to boost the second quarter’s “robust” growth increased the US budget deficit.

America’s massive fiscal debt could preclude the government from instituting future stimulus packages. The IMF predicts that US economic growth will likely drop by between 1 and 2 percentage points in the coming quarters and years, estimated at 2.9% and 2.5% respectively in 2018 and 2019.

While China’s economy will also be hit by the trade war, the IMF and other organizations project that it will grow 6.8% and 6.5% this year and next. Indeed, HSBC and the IMF predict that China will replace the US as the world’s biggest economy by 2030 if not sooner. Meanwhile China’s public and consumer debts are far lower than those of the US.

And for those who suggest that declining stock prices are a sign that China is losing the trade war, don’t be too sure. China’s stock markets are in essence gambling houses for small investors to make a quick buck. They are not indicative of economic performance like stock markets in the West.

Some economic commentators have remarked that mounting a trade war against China is wrong, hurting America just as much as if not more than China. Perhaps Trump also sees that, because he appears desperate, creating problems and blaming China for them. He even told the world at the recent USGA meeting that China is “meddling in the US midterm and presidential elections” because the “communist” country dared to retaliate against him.

The latest news is the South China Sea “freedom of navigation operation” in which a Chinese destroyer chased an American one out of China’s 12-mile exclusive economic zone. CNN and other news outlets reported that the Chinese navy “behaved irresponsibly and aggressively,” hoping to gain support for escalating the trade and possibly military war against China. It seems that “yellow journalism,” sensationalizing an incident to sell papers or increase viewers, is alive and well in the US.

Trump should be aware of the consequences of fighting a war based on “fake news.” He should consult George W Bush, who will likely be tarnished in history by the Iraq war. Lyndon Johnson’s Vietnam War not only cost more than 50,000 American lives, it also cost him a second term. China will be a far more formidable foe.

Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China’s Economic Rise and Its Global Impact in 2015. HIs second book, Developed Nations and the Economic Impact of Globalization, was just published by Palgrave McMillan Springer.